Office of the Attorney General
State of Texas

Re: Authority of the Texas Department of Mental Health and
Mental Retardation to transfer funds for start-up costs to a
private entity that contracts to provide community-based services
to clients of the department, and related questions (RQ-1582)

Dear Mr. Jones:

You ask identical questions regarding the authority of the
Texas Department of Mental Health and Mental Retardation [the
Department] and mental health/mental retardation community
centers. We have combined your four questions into two for the
purposes of this opinion.

Do the Texas Department of Mental Health and Mental
Retardation (TDMHMR) and mental health/mental retardation
community centers established pursuant to article 5547-203,
V.T.C.S. (community centers), have the authority to pay 'start up
costs' to a non-governmental entity which has contracted to
provide community-based services to mentally disabled clients of
the department?

If the answer to the first question is affirmative, and if
the funds were expended by the non-governmental entity for the
purpose of which they were paid, must the 'start up costs' be
repaid to the department or the community center? In responding
to this question, please consider the possibility that such funds
could be used to purchase or improve real property, or to
purchase furniture, appliances and other nonconsumable items.

We have combined your questions because the considerations are
the same: both the Department and community centers established
pursuant to article 5547- 203, V.T.C.S., are agencies of the
state. See generally V.T.C.S. art. 5547- 201; V.T.C.S. art.
5547-203, s 3.01(c). See also Attorney General Opinions M- 1266
(1972); C-584 (1966).

In your letter you explain that the anticipated startup costs
may be as follows:

e. salaries, fringe benefits, travel and per diem costs of
employees during the period of training necessary prior to
initial service contact with the disabled persons; and

f. other costs associated with the preparation to provide
services.

The Mental Health and Retardation Act enables both the
Department and community centers to contract with private
parties. The Department is authorized under article 5547-202,
section 2.13, V.T.C.S., to "cooperate, negotiate and contract
with local agencies, hospitals, private organizations and
foundations, community centers, physicians and persons to plan,
develop and provide community-based mental health and mental
retardation services." (Emphasis added.) Community centers are
similarly authorized under article 5547-203, section 3.12(a),
V.T.C.S., to "make contracts with local agencies and with
qualified persons and organizations to provide portions of these
services." (Emphasis added.)

You express concern that advance payment of start-up costs to a
non- governmental entity might contravene sections 50 and 51 of
article III of the Texas Constitution. Those sections prohibit
the grant of public credit (section 50) and public monies
(section 51) to private individuals or entities. The Texas
Supreme Court has declared that the purpose of these and similar
constitutional provisions is to "prevent the application of
public funds to private purposes; in other words, to prevent the
gratuitous grant of such funds to any individual or corporation
whatsoever." See, e.g., State v. City of Austin, 331 S.W.2d 737,
742 (Tex.1960). The Supreme Court has also said "an expenditure
for the direct accomplishment of a legitimate public and
municipal purpose is not rendered unlawful by the fact that a
privately owned business may be benefited thereby." Barrington
v. Cokinos, 338 S.W.2d 133, 140 (Tex.1960).

This office has issued a number of opinions approving the
advance payment of public funds to private parties for the
achievement of a public purpose. See, e.g., Attorney General
Opinions MW-423 (1982) (grant to private museum honoring
firefighters); H-1010 (1977) (payment of medical tuition as
partial compensation for promise that student will practice
medicine in county); H-74 (1973) (prepayment of state employees'
authorized travel expenses); V-1067 (1950) (advance payment by
the state of annual rent on business machines).

This office has also issued several opinions granting limited
approval of the expenditure of public funds for the improvement
of realty owned by private parties. Attorney General Opinions
JM-551 (1986) (Southwest Texas State University may expend state
funds on permanent improvements on property held in trust); MW-514 (1982) (Texas Technical University may expend public funds
for permanent improvements on property owned but subject to
reverter); H-403 (1974) (Department of Agriculture may expend
public funds to erect, repair or maintain improvements on leased
property); M-512 (1969) (Department of Public Welfare may expend
funds to refurbish a leased building).

The constitutional provisions were exhaustively examined in the
opinions cited above, and we need not reiterate the logic that
allows payment of public funds to private entities. It is
sufficient here to restate the principle that the constitutional
provisions are not violated when public funds are expended for
the achievement of a public purpose, when the public receives
adequate consideration in return, and when the governmental body
retains control over the use of the funds to ensure that the
public purpose is achieved. See generally Wilatt, Constitutional
Restrictions on Use of Public Money and Public Credit, 38 Tex.Bar
J. 413 (1975); see also Attorney General Opinions JM-551 (1986);
MW-373 (1981).

Generally, the determination of whether a particular
expenditure of public funds meets those constitutional
requirements is left, at least in the first instance, within the
sound discretion of the governing body that proposes to pay
public funds to a private entity. See, e.g., Dodson v. Marshall,
118 S.W.2d 621 (Tex.App.--Waco 1938, writ dism'd); Attorney
General Opinions JM- 551 (1986): MW-423 (1982); MW-373 (1981);
H-1260 (1978); H-403 (1974).

We believe that the legislature has identified the community
placement and treatment of mentally disabled individuals as a
public purpose through its statement of public policy in several
sections of the Mental Health and Mental Retardation Act.
Section 1.01(c) of article 5547-201, V.T.C.S., states in part
"[i]t is the policy of this state that when appropriate and
feasible, mentally ill and mentally retarded persons shall be
afforded treatment in their own communities," and subdivision (d)
of that section states "[t]he public policy of this state is that
mental health and mental retardation services be the
responsibility of local agencies and organizations to the
greatest extent possible."

The second question, regarding repayment of advanced funds, is
directly related to the constitutional requirements of
consideration and control. As noted above, the determination of
whether or not a transaction fulfills those constitutional
requirements is, in the first instance, within the discretion of
the governing body of the political subdivision or agency.

While we believe that the constitution does not require total
repayment, it does require a quid pro quo. While that can be
accomplished by total repayment, it can also be accomplished by
contractually guaranteed service for a certain period of time
coupled with forgiveness of a portion of the amount advanced.
See, e.g., Attorney General Opinions MW-423 (1982) (Historical
Commission could grant funds to private museums, if museum is
contractually required to serve the public for a certain period
of time); H-1010 (1977) (county could advance medical tuition on
condition that student would act as county health officer, with
forgiveness of part of tuition payment after a certain period of
service). As noted in Attorney General Opinion MW-423 (1982),
the period of service required to assure that the public receives
adequate consideration is within the discretion of the governing
body.

You have not provided us with a proposed contract, and we
decline to speculate about possible contractual provisions. We
must leave it within the discretion of the Commissioner of Mental
Health and Mental Retardation and the board of trustees of a
community center to assure that the constitutional requirements
of consideration and control are met. Of course, all
transactions are subject to applicable statutes and departmental
rules.

SUMMARY

The Texas Department of Mental Health and Mental Retardation
and mental health/mental retardation community centers may
contract with private parties to plan and to provide for
community-based services to mentally disabled clients. Both the
Department and community centers may pay "start-up costs" to non-governmental parties, provided that the public receives adequate
consideration and the governmental body retains enough control
over the expenditure of the funds to assure that the public
purpose of community-based mental health/mental retardation
services is actually fulfilled.